This impression is based on the fact that Pakistan and International Monetary Fund are still polls apart, mainly because the Pakistani economic team is not paying heed to the instructions of the Fund.
Over the last six weeks the Shehbaz team has not met even the first target of raising prices of petroleum products and electricity and gas tariffs. Most of the time is being wasted on maligning the previous government headed by Imran Khan, rather than taking into account the harsh domestic and international realities.
The team faces the most tedious task of projecting income and expenses targets and meeting the deficit. It is too obvious that the coalition government has fewer options available to boost income and it will not be able to follow any austerity drive because of the mindset of the ruling elite. There is a consensus that the elected representatives will not be ready to accept any substantial cut in their salaries and perks.
It is feared that the axe will fall on federal and provincial public sector development programs. The top priority areas are: 1) improving irrigation system, 2) strengthening electricity and gas transmission and distribution infrastructures. The mounting circular debt can’t be contained without containing rampant pilferages.
For boosting country’s exports, cost of doing business has to be reduced. The top two expenses to be rationalized are interest rate and energy tariffs. The GoP expects to receive US$2 billion from IMF over the next two years. Experts believe that this much amount can be raised by exporting just one item, one million tons urea. The country has the surplus capacity to produce one million ton exportable surplus urea by ensuring uninterrupted supply of natural to the fertilizer plants.
There is no denying to that fact that huge quantities of wheat, edible oil, POL products and even urea fertilizer are being smuggled to the neighboring countries. The key problems are 1) highly porous borders and 2) restriction on the export of these commodities. These problems can be overcome by plugging boarders and bringing necessary changes in the Trade Policy.
Last but the foremost, the economic team has to come out of the illusion that hike in interest rate can help in containing inflation in the country. Let this be known to all and sundry that Pakistan suffers from cost pushed inflation. The biggest loser of hike in interest rate is the GoP. Let me reiterate that GoP is the biggest borrower and with each hike in interest rate, its debt servicing ability is marred.
